SINGAPORE (Dec 21): La Nina is making a return bringing with her above-average rainfall for planters in the coming months.

While this supports healthy FFB (Fresh Fruit Bunches) yields, DBS says there is risk of disruption to harvesting activities if excessive rain or flooding occurs.

But barring supply disruptions, prices will continue to be capped by lukewarm export demand though.

DBS' preference continues to be for companies with strong internal CPO yield outlook.

"These are Astro Agro Lestari, First Resources, London Sumatra, Bumitama Agri and TSH Resources," says DBS Vickers' analyst William Simadiputra in a Thursday report.

The research house has price targets of 94 cents and $2.18 for Bumitama Agri and First Resources respectively.

Malaysian Palm Oil Board’s (MPOB) November statistics revealed that palm oil output declined 3.3% m-o-m to 1.94 million MT, but was 23% higher y-o-y.

While FFB yield sequentially declined in Peninsula Malaysia and Sarawak, Sabah experienced m-o-m rebound from the lagged El Nino impact which had impacted its Sep/Oct yields.

"We expect output to see a further m-o-m slowdown in December, though 2017 will be conclusively higher with 11M17 production up 14% y-o-y," adds Simadiputra.

November palm oil exports were lacklustre, 1.2% lower y-o-y at 1.35 million MT or 12% lower m-o-m.

This was primarily dragged down by India where exports fell 24% y-o-y to 100,000 MT, which was also its lowest monthly figure since April 2015.

Simadiputra thinks this was due to impact of an increase in import duties in November, which could have restricted demand to the bare minimum level in the near-term.

Still, total exports were partly cushioned by improving volumes to non-top-three destinations like the Philippines, Vietnam and Iran.

Firm output and soft exports led to November stockpile rising 16% m-o-m to 2.56 million MT, slightly ahead of expectations, and the highest level since December 2015.

"While we expect seasonal softening of output to restrain further inventory expansion from current levels, there is upside risk if exports continue to be weak for a prolonged period," concludes the analyst.

Bumitama Agri is trading at 74 cents or 10.7 times FY18 forecast earnings while First Resources is trading at $1.88 or 12.7 times FY18 forecast earnings.